Tax-Cut Deal: It's All Over but the Estate Tax

President Obama's Bush-tax-cut deal inched closer to his desk Wednesday afternoon, with only a dispute over the Estate Tax standing in its way.

The Senate passed a tax-cut deal that resembles what President Obama laid out--extend all the Bush-era tax rates for two years, throw in a one-year two-percent payroll tax cut, add in a child tax credit, etc.--except with other assorted goodies thrown in by Senate Democrats, including biodiesel credits and the like.

The next step: House Democrats will have to sign off on this, and they're angling to bring it to the floor later this week.

But before they do that, House Democratic leaders are seeking changes to the Estate Tax included in this deal, which President Obama proposed last week (to their dismay) and which the Senate passed in its version Wednesday afternoon.

The Estate Tax, aka the Death Tax, aka the tax on large estates that wealthy people transfer in their wills, expired last year. In the Bush-instituted tax plan of 2001, the Estate Tax was lowered and planned to stop existing in 2010 (which it did--there was no Estate Tax in 2010) then go back into effect at its much higher pre-2001 levels next year.

If untouched the Estate Tax will come back at a maximum rate of 55 percent and an exemption of $1 million.

Under the Senate-passed version, the Estate Tax would return at a lower rate than planned: a 35 percent maximum tax rate, with an exemption of $5 million per person and $10 million per couple.

House Democrats want a higher rate and higher exemptions. They want to revert to the 2009 levels: a maximum rate of 45 percent and an exemption of $3.5 million for individuals and 7 million for households. As of this morning, it wasn't clear how House Democrats would handle this, but it looks like they'll vote on this Estate Tax provision on the floor in some fashion in the next couple days.

This is all backdropped by the politics of nuclear arms reduction: Sen. John Kyl (R-AZ) is pushing the $5 million/$10 million/35 percent Estate Tax levels, and he's also the senator who's holding up President Obama's New START arms-reduction treaty with Russia. Reid is trying to get New START, the omnibus bill to continue funding the government, and the repeal of 'Don't Ask, Don't Tell' to the floor as soon as he can.

The "Death Tax" is a campaign season favorite. It made its ominous-sounding return this year as Republicans ran ads accusing Democrats of supporting it.

This time, it's all about insider negotiations rather than attack ads, and the next few days will actually determine what form the Estate Tax will take next year.